How AstraZeneca built its £200bn medicine cabinet

AatraZeneca has seen its value soar above £200bn in recent days after a spectacular rise in its shares. Few companies listed on the UK stock exchange have ever achieved this feat.

Under the leadership of Sir Pascal Soriot, the pharmaceutical giant is one of Britain’s biggest success stories. But even his greatest admirer might not have predicted that when he took over 12 years ago.

AZ is one of the few companies listed on the UK stock exchange that are truly world-class in their field – a fact that seems to have escaped Rachel Reeves. The Chancellor of the Exchequer wants to roll back a deal to provide government support for a planned £450m vaccine manufacturing site in Merseyside, which could lead to AZ moving the facility elsewhere.

Reeves may feel reluctant to provide government support to a multi-billion dollar company that is reportedly doing well.

But as her predecessor Jeremy Hunt put it: ‘If the Chancellor is after growth, then rolling back this deal is a funny way of showing that.’

AZ’s status as a major British company is a remarkable transformation since the company was attacked a decade ago by Pfizer, the powerful US drug group behind Viagra.

The US company made a £69bn takeover bid and few expected Soriot to beat the predatory firm.

In doing so, he underestimated the wily and resilient French-Australian, who had risen from a rough neighborhood in the Parisian suburbs, where he was often forced into fights, to the top.

After beating Pfizer, he faced the daunting task of proving to investors that he was right to oppose it.

Soriot has justified himself in a way that surpasses everyone’s wildest dreams, except his own.

Even without a hostile bidder, Soriot had taken control at a difficult point in the company’s long history. The legacy dates back more than a century, in 1913, when Astra, originally a Swedish company, was founded by a group of doctors and pharmacists.

Astra merged in 1999 with Zeneca, the pharmaceuticals division of former British chemicals flagship ICI, which broke up after a hostile bid from corporate raider Lord Hanson.

The duo entered the London market with the hope of creating a new British pharmaceutical giant together with rival GSK.

But by 2012, when Soriot entered the market, the company was already a laggard in its sector.

Some feared that ICI might even disappear into the graveyard of multinationals.

Valuable drug patents expired, leaving the industry on the brink of collapse with little in the pipeline.

Soriot, who had left his European rival Roche for a hopeless case, was accused of committing suicide.

Instead, his arrival heralded a spectacular rebirth.

In the midst of the Pfizer acquisition in May 2014, he set himself a very ambitious goal: to reach more than $45 billion in sales by 2023.

He achieved that goal earlier than expected and has now set a new target: $80 billion in revenue by 2030.

Soriot’s secret is that the company invests heavily in growth through innovation.

While other big pharmaceutical companies poured money into sales and marketing, he insisted on investing a fifth of revenues in research and development, no matter the weather. The result is that the company has 13 blockbusters—drugs with annual sales of more than $1 billion—in the pipeline, including cancer drugs Enhertu and Imfinzi.

The company expects to bring 20 new drugs to market by the end of this decade, by which time it expects to have brought more than 25 successful drugs to market.

After 2030, AstraZeneca is pinning its hopes on ADCs (Antibody-Drug Conjugates).

Simply put, this is a smart chemotherapy that delivers a very powerful shock to cancer cells while minimizing damage to healthy cells.

Other sectors where growth is expected include weight management, where the company lags behind companies such as Novo Nordisk, the maker of Wegovy.

The business is geographically diverse, with China being the second largest market after the US and more growth expected from emerging economies.

Soriot’s highlight so far, however, has been working with the University of Oxford to develop a vaccine against Covid-19, especially since Astra is not exactly known for its vaccine expertise.

Initially, the injection was provided on a non-profit basis, which may not have resulted in maximum shareholder returns in the short term, but did provide invaluable publicity value.

Soriot’s handsome remuneration has been the source of some controversy. Last year, his pay packet peaked at almost £17m, taking his total earnings at AstraZeneca to a staggering £135m – and counting.

A third of investors at this year’s annual meeting rebelled against a remuneration policy that could boost its returns this year to almost £19m.

These are staggering sums, but at least they are rewards for success. Reeves may feel she has no reason to subsidize a company where the boss makes so much money and the revenue runs into the tens of billions.

But the reality is that AstraZeneca could move its facilities, jobs and stock exchange listing elsewhere, leaving Britain poorer.

If she wants growth, she must support those who create that growth.